This European investment bank predicts LNG market to remain oversupplied
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The LNG market is oversupplied with European storage inventories at 89 per cent.
French-headquartered investment bank Natixis has predicted this coming winter will need to be extreme for the oversupply to end.
The Big 4 importers – Japan, China, South Korea and Taiwan – will be buying. But supply will grow faster than demand. Why?
It blamed abundant storage, a higher contracted position and a maturing Chinese market. Previous winters left China undersupplied but it has learnt its lessons from last time.
Additionally, China is prioritising its own domestic gas sector and is diversifying its suppliers. It is particularly reliant on Gazprom’s Power of Siberia Pipeline.
South Korean demand for LNG had actually grown in the last year, to 17 per cent. But it is also diversifying energy sources, delving into nuclear.
Winters are particularly severe in northern Asian regions requiring a greater range of energy sources and quantity. But Natixis declared that Asian winter demand would be “no panacea for oversupplied natural gas markets”.
Despite the stagnation in demand, LNG is still needed. Natixis predicted the West Australian Icthys project, as well as the Cameron project in Texas, would bring the biggest contribution of LNG supply. Overall it expects 5 billion cubic metres (bcm) of supply capacity for the rest of this year.
Beyond the so-called Big 4, other markets are growing. Bangladesh only imported its first significant quantity of LNG last September but has gown to 2.76bcm this year. Pakistan’s demand has grown to 1.24bcm.
But the challenge for these economies is that LNG comes at a premium to regular domestic gas even at current price levels.
Egypt, once a perceived opportunity for exporters, has not imported LNG since October last year. Mexico has been an importer of LNG but is increasingly turning to pipeline gas from the US.
“Although current forward and spot prices are likely to increase the volume of ‘swing demand’ into winter, we expect LNG markets to remain oversupplied,” Natixis said.
“It will therefore depend on additional weather driven demand, further price falls to encourage additional fuel switch or gas supply reductions to balance the global market.
“Barring an extreme winter, the global gas market will require the region to absorb as much LNG as possible this winter.”